Is the Tax Code Driving Taxpayers from Wisconsin?

August 11, 2014

Since 2011, Wisconsin has cut its taxes by $2 billion. Under the leadership of Governor Scott Walker, Wisconsin lawmakers have simplified the tax code, eliminated 17 different tax credits and reduced the number of income brackets from five to four.

Yet the state loses $136 million each year as its residents leave Wisconsin for other states. Could they be leaving because Wisconsin taxes remain burdensome? NCPA Senior Fellow Pamela Villarreal says that the tax code is a likely culprit. In addition to its income tax, Wisconsin has high property taxes (the fifth highest in the nation), though its sales tax (5 percent) is lower than the rates in the four states that border it.

In a joint publication from the MacIver Institute and the National Center for Policy Analysis, Villarreal identified the five states to which most Wisconsin residents are moving: Florida, Arizona, Texas, Colorado and North Carolina. Using the NCPA's State Tax Calculator, which calculates lifetime gains or losses from moving from one state to another, she discovered that, with a few exceptions, most Wisconsonites would be better off moving to one of those five states. 

Of the money that Wisconsin has lost from its residents moving out of the state, the majority has gone to Florida -- a state with no income tax. Additionally, Florida's property tax rate is just 0.97 percent (half of Wisconsin's rate of 1.76 percent). Of nine states that Villarreal analyzed, Wisconsin residents have the most to gain, on a tax basis, from moving to Florida. For example:

  • By moving from Wisconsin to Florida, a 25-year-old single renter with an annual income of $30,000 would gain $675 each year in discretionary income, for a lifetime wealth gain of $75,322.
  • A 50-year-old married couple with a home earning $100,000 annually would gain $3,093 annually in discretionary income, for a lifetime gain of $202,891.

But Florida also offers warm weather - making it difficult for Wisconsin to compete. So, Villarreal also looked at Wisconsin's neighbors: how does it fare against similar Midwestern states?

  • Of Minnesota, Michigan, Iowa and Illinois, Wisconsin has a clear tax advantage only over Illinois which, while it has a flat income tax, boasts a high sales tax rate.
  • Low and middle-income Wisconsin residents, especially renters, benefit from the Wisconsin tax regime compared to that of neighboring states, but higher income earners do not.

Villarreal cautions that Wisconsin should be concerned about the potential flight of high income earners from the state, as those earners are the ones who pay the most in taxes.

Source: Pamela Villarreal, "Is the Tax Code Driving Taxpayers from Wisconsin?" Joint Publication by the MacIver Institute and the National Center for Policy Analysis, August 2014.

 

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